Three share Nobel Prize in economics

Oct 11 2010 - 11:26pm

Images

STEPHAN SAVOIA/The Associated Press
Massachusetts Institute of Technology economics professor Peter A. Diamond (right) talks with university President Susan Hockfield before a news conference in Cambridge, Mass., after learning he is one of three economists to win the 2010 Nobel Prize in economics on Monday.
File/The Associated Press
Two other 2010 Nobel Prize in economics winners’ (left) American economist Dale Mortensen, and Professor Christopher Pissarides, of the London School of Economics
STEPHAN SAVOIA/The Associated Press
Massachusetts Institute of Technology economics professor Peter A. Diamond (right) talks with university President Susan Hockfield before a news conference in Cambridge, Mass., after learning he is one of three economists to win the 2010 Nobel Prize in economics on Monday.
File/The Associated Press
Two other 2010 Nobel Prize in economics winners’ (left) American economist Dale Mortensen, and Professor Christopher Pissarides, of the London School of Economics

CHICAGO -- A trio of economics scholars, including an MIT professor whose nomination to the Federal Reserve Board has been held up in the Senate, won the Nobel Prize in economics on Monday for their studies of markets and how mismatches between buyers and sellers can contribute to such problems as high unemployment.

Peter A. Diamond, of the Massachusetts Institute of Technology, and fellow American Dale T. Mortensen, a professor at Northwestern University, will share the $1.5 million award with Christopher A. Pissarides, a British and Cypriot citizen who teaches at the London School of Economics.

The three men pioneered and developed models that help explain, among other things, why there are so many jobless people even as there are a large number of job openings -- a problem that is particularly relevant today as the United States and other developed countries grapple with stubbornly high unemployment.

The U.S. jobless figure for September was reported Friday at 9.6 percent.

"The laureates' models help us understand the ways in which unemployment, job vacancies and wages are affected by regulation and economic policy," the Royal Swedish Academy of Sciences said in announcing the prize.

"This may refer to benefit levels in unemployment insurance or rules in regard to hiring and firing," the statement said. "One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times."

The idea that more-generous jobless benefits can provide a disincentive for workers to seek or take jobs has been hotly debated in the U.S. as policymakers have continued to face pressure to extend unemployment checks for millions of people.

Mortensen, in a conference call from Denmark, where he is currently a visiting professor at Aarhus University, said his models do show a negative effect of higher jobless benefits.

But he dismissed that as a major factor in the high unemployment, saying instead that the current job troubles are a function of the impaired financial markets.

"I really don't think this is the time to worry about that," Mortensen, 71, said of unemployment benefits.

The works of Diamond, who first developed a theoretical framework on "search markets" in the early 1970s, and Mortensen and Pissarides also offer insights into another ongoing debate among economists -- whether the high unemployment today reflects structural deficiencies such as mismatches in skills or problems that are more cyclical in nature because of weak demand.

Some economists have argued the troubles are structural, suggesting that unemployment won't be going back to the normal range of 5 percent, while others have emphasized that the terrible labor situation demands more substantial government stimulus to bolster demand for goods and services.

Diamond acknowledged that the process of improving the job market "is going to be slow and painful" for the whole economy.

and people looking for work. But he didn't view it as a structural problem, suggesting more optimism for the future.

"I think the economy is very adaptive," he said. "Workers and employers will adapt."

Diamond, 70, who received his doctorate from MIT and has been a professor there since 1966, is considered by peers as a brilliant theorist whose works on social security systems are highly regarded.

Last spring he was nominated by President Obama to fill one of three vacancies on the Fed's board. But while two other nominees to the Fed board were cleared recently, Diamond's confirmation was effectively blocked by Senate Republicans.

Sen. Richard Shelby of Alabama, the ranking Republican on the Banking Committee, questioned whether the MIT professor had enough practical experience to serve as a Fed governor.

Asked about the Fed nomination during a news conference at MIT, Diamond said he would not withdraw his candidacy but declined to comment further.

------

From Around the Web

  +